For correctly comprehending the concept of susceptibility of P.F. contribution in basic wages we shall have to refer to the definition of "basic wages" under Section 2(b) of the EPF Act 1952 as follows :
"Section 2(b) of the EPF Act defines the term basic wage - Section2 (b) (i) "basic wage" means all emoluments which are earned by an employee while on duty or on leave or on holidays with wages in either case in accordance with the terms of contract of employment and which are paid or payable in cash to him, but does not include the value of any goods concession.
(ii) any dearness allowance that is to say, all cash payments by whatever name called paid to an employee on account of a rise in cost of living, house rent allowance, overtime allowance, bonus, commission or any other similar allowance payable to the employee in respect of his employment or of work done in such employment, (iii) any presents made by the employer."
Exception in clause (ii) exclude the dearness allowance from the ambit of basic wages but under Section 6 contribution has to be made on dearness allowance and retaining allowance.
This is the position as has been provided in the Act. The Supreme Court propounded the theory of "universality" in classic holding in Bridge and Roof Company (I) Ltd. V/s. Union of India 1962 (5) FLR 423 (SC) and Jai Engineering Works Ltd. V/s. Union of India 1963 (6) FLR 325. The court held that "whatever is payable by all concerns and earned by all permanent employees of the concern is included for the purpose of contribution under Section 6, but whatever is not payable by all concerns or may not be earned by all employees of the concern is excluded for the purpose of contribution". This is the crucial test which has been prescribed in these two celebrated cases. Then again the Supreme Court itself in the case of T.I. Cycles of India Ambattur M.K. Gunimans and others (2001) 91 FLR 153 (SC and Manipal Academy of Higher Education Vs. Provident Funds Commissioner 2008(117)FLR 358 followed the law as enunciated by it earlier, rather it elaborated the law. However in spite of all this sometime in 2012 Madhya Pradesh High Court in the case Surya Roshni V/S EPFO & another held that special allowance, dearness allowance, conveyance allowance etc. would be part of basic wage. The Surya Roshni Ltd. went in appeal by Special Leave Petition before the Supreme Court which granted stay of High Court Judgment on depositing the 60% of the amount as demanded. Now on 28th Feb. 2019 the Supreme Court delivered the epoch making judgment which created confusion and concern in employer community and sent wave length of enthusiasm and made the department all "activist" to proceed against the employer who are not paying contribution on certain allowances. I have examined the subject judgment all critically taking in to account that this judgment refers to all the Supreme Court cases as refereed above all approvingly and it.
"Observed that under Section 6 of the Act the establishment was liable to pay contribution to PF on basic wages, dearness allowance and retaining allowance if any and that to exclude any incentive wages from basic wages it should have a direct nexus and linkage with the amount of extra output" then after detailed discussion the court in para 14 concluded that "applying the aforesaid tests to the facts of the present case no material has been placed by the establishments to demonstrate that the allowances in question being paid to its employees were either variable or were linked to any incentive for production resulting in greater output by an employee and that the allowances in question were not paid across the board to all employees in a particular category or were being paid especially to those who avail the opportunity. In order that the amount goes beyond the basic wages, it has to be shown that the workman concerned had become eligible to get this extra amount beyond the normal work which he was otherwise required to put in. There is no data available on record to show what were the norms of work prescribed for those workmen during the relevant period.
A dispassionate perusal of the aforesaid would reveal that any incentive or allowance which is intended to yield something extra or additional would not be basic wage. So precisely speaking this judgment has not changed the components of the allowance which fall outside the basic wage as enunciated by Supreme Court in earlier cases. We shall only have to change the nomenclature of certain allowance to escape the liability. Unfortunately our media, press and news papers for giving sound and fury to certain news just cursorily declared that all allowances would be susceptible to PF contribution the positions is not so. Incentives would still be outside basic wage but they should be variable. I am used to think and expose certain propositions out-of-the box and that done in the recent judgment twice refereed to the beneficent rule of interpretation of the in favour of weaker section which, term into days context is abstract and vague. I therefore dare say that objectivity has been causality. I now next just take to enumerate the practical difficulties that shall be encountered in implementing the revised provision as to which would be the crucial date of making the provision effective, what would be the position of allowance that are being paid to employees getting basic salary more than Rs. 15000/-. Allowances to such persons are not statutorily susceptible to PF contribution because they are being paid by grace by their employers. Similarly what would be the fate of those allowances which the PF department itself has exempted from levy of contribution? Such are the burning questions which wiser heads must address them with. One more vastly important aspect is there that technically speaking it is a judgment in appeal not in writ jurisdiction. It is therefore only binding between parties to the case and for others it is only obiter dicta. This is ticklish and delicate legal point which goes to the root of the allowances.